BPCL divestment progressing, but multiple steps remain: Fitch
BPCL has made headway on many aspects in the last six weeks, but there is still little information about bidders, valuations or potential restrictions for the new owner in relation to employee protection, asset stripping and investment lock-in, Fitch said
Even as the state-run refiner Bharat Petroleum Corporation Ltd (BPCL) has finalized the terms to purchase Oman Oil Company's 36.6% stake in its Bina refinery for Rs24 billion; sold 5.8% of its 7.3% treasury shares for Rs55 billion; and approved the sale of its 61.7% stake in Numaligarh Refinery Limited for Rs99 billion in March, multiple steps of its stake sale process remain outstanding, according to Fitch Ratings.
"BPCL has made headway on a key precondition to its divestment and other key milestones over the last six weeks, however, there is still little information about bidders, valuations or potential restrictions for the new owner in relation to employee protection, asset stripping and investment lock-in," said Fitch Ratings in a note on Friday.
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Fitch added that it is also monitoring the progress on interested parties receiving security clearances from the government, access to the data room, the start of the due diligence process, reserve-price disclosure by the government, the submission of financial bids by bidders and the solicitation of lenders' consent should a winning bid be selected.
BPCL's bonds, which had $2 billion outstanding as of end-2020, will need to be refinanced or the holders' consent solicited, should the government accept a winning bid triggering the change of control clause.
"We believe the extent of refinancing or consent will depend on BPCL's rating at the time. We do not expect the government to halt the sale should it be dissatisfied with the financial bids, given its budgeted disinvestment target and strongly articulated intent, but this could prolong the process," it said.
There also needs to be further clarity on the future of subsidies paid to BPCL's customers on the sale of liquefied petroleum gas and kerosene as well as the freedom on pricing of petrol and diesel before the divestment can conclude.
The government has traditional used oil marketing companies, including BPCL, to carry out its socio-political agenda, but private companies may be less inclined to bear such regulatory risk.
"The sale of the government's entire shareholding in BPCL would lead to a reassessment of BPCL's ratings, based on a reassessment of its SCP (standalone credit profile) and the nature of the potential buyers, including the credit quality of any majority parent and Fitch's assessment of the strength of linkages between the new parent and BPCL," said the ratings agency.
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